Mayor Richard Alcombright expounds on some of the findings in the city's annual audit.
NORTH ADAMS, Mass. — The city's auditors are recommending deep cuts or a Proposition 2 1/2 override to replenish reserves.
The city has been burning through reserves to cover a budget gap over the past several years as cuts have failed to offset rising costs and declining revenues.
"The city can go one of two ways — you cut the budget or go for some kind of exclusion," Thomas Scanlon, principal of Scanlon & Associates, told the City Council on Tuesday night. "I'm not in the habit of just throwing those words around because these are people's taxes."
Mayor Richard Alcombright, facing a nearly $800,000 deficit before the fiscal year has even started, said Scanlon's assessment was "well taken" and indicative of the city's financial problems since the failure of an override several years ago.
"We're going to have some very serious discussions over the next few weeks about the budget," he told the council.
"If we cut $800,000 this year without any future adjustments or thoughts about revenue, I'll be right back here next year with four or five hundred thousand in the hole.
"It's just going to continue to escalate until we can find some sustainable growth."
Scanlon pointed to the financial difficulties inherent in the situation in its annual management letter to the city during Tuesday's audit presentation.
The audit found a few procedural issues but no "material weakness" in the city financial controls, and improvement in several areas.The main issue it warned about was the lack of reserves and use of account transfers.
The city had leftover funds of only $40,700 in fiscal 2012 and a deficit of $348,000; in fiscal 2013, free cash was a minus-$42,711 with a total deficit of $183,006.
"The lack of free cash or other available reserves is often indicative of a community's financial instability in difficult economic times," the letter states. "The results summarized above would not be considered financially healthy by municipal financial standards."
North Adams should have an amount of between 3 percent and 5 percent of its budget in reserves, or about $1.2 million.
The management letter also pointed to the large year-end transfers from reserve accounts, showing that "the original adopted budgets are not reflective of the departments intended spending."
Scanlon said the state penalizes municipalities for negative free cash positions and that it can affect bond ratings when they go to borrow.
"You can see your reserves aren't up to snuff," he said, taking the councilors through the audit.
The city's $40 million budget is dependent largely upon state aid (48 percent) and property taxes (34 percent).
State aid has significantly dropped off since the financial collapse in 2007-08 and is now $200,000 less than what the city received in 2001, said the mayor.
"If we had the ability to raise more cash or cut our budget more deeply, we would have," said Alcombright.
Regarding an override, Scanlon cautioned that "if the city goes that route, there has to be a plan in place and it has to be well thought out."
The audit and management letter can be found here.
In response to questions from councilors, he gave the examples of Auburn and Northampton as having good plans in dealing with the new levy capacity provided through an override.
Resident Wayne Goodell objected to the idea of an override, noting the closure of Northern Berkshire Healthcare and the loss of hundreds of jobs.
"It's tough to pass an override with over 500 people out of work," said Goodell, claiming any cuts made by the administration had been given out in raises and pointing to overtime in the public safety budget. "Before we talk about an override we need to get down to the basics and talk about principles."
Administrative Officer Michael Canales responded that the raises given for taking on more responsibility had corresponded with larger cuts to save money.
For example, not hiring a public safety commissioner had meant a savings of more than $80,000 by spreading the responsibilities among three other positions and giving them $5,000 raises.
"It's not so much we're lavish as this is how much it costs to run our city," said Councilor Joshua Moran. "We tried the override and it failed so we did our cuts ... ."
People were upset about crime last summer, and now they're upset about police getting a raise, he said.
Councilor Jennifer Breen said people come to council and "say things that have no reality."
"People just throw things out there," she said. "I should be able to say what's actually happening ... I think we should be able to respond them."
Council President Lisa Blackmer, however, gaveled her, saying it wasn't an open forum and the speakers also had a right to their opinions.
Both Breen and Blackmer did ask for a historical look at the use of reserves and free cash back at least a decade.
Alcombright said the deficit is still big but has improved somewhat.
"We've seen that shrinking as we see assessments coming in," he said. "There are a few other encouraging signs."
He expected to present a draft budget to the council at its next meeting and asked for a meeting of the Finance Committee the next day, with other dates the following week.